Investing in the New Normal – Post Covid19
No amount of planning could have predicted the hot-mess that 2020 has turned into, and we’re all going to have to keep on walking through it to the other side. That doesn’t mean we do nothing ( though, let’s face it, it might be exactly what we feel like some days), The other-side is going to unveil new opportunities, new and better ways to work, so in the dying weeks of 2020, do some planning.
This pandemic and its fallout are not over. I think we were all hoping that the second wave would involve younger, fitter, and healthier portions of the populations – but it is not so. The youngsters are taking the virus home and infecting family members that are still vulnerable. In Europe and the UK, hospitals are starting to feel the strain, and once again they are facing the prospect of being overwhelmed, hence the new lockdown measures. Fortunately our medical experts have learned a lot in the last 6 months and a far greater percentage of of hospitalised patients aren’t dying. Yes, an early mRNA vaccine (Pfizer) will be available so some, soon – but it has to be stored at -70C (most deep freezes go to -20C) which makes the logistics of getting it out to people much more difficult. It is unlikely that it is going to be freely available until the second or third quarter next year, and it is likely to be expensive (for us Saffers) and administered every year.
Make no mistake, I would love to see a happy medium where the economies could get going at the old levels again, but when you have healthcare health care system (anywhere in the world) that cannot cope, doctors have to start making “Eugenic” or “Social Darwinistic” decisions by choosing who lives or dies, economic considerations are going to take a back seat for a while.
Instead of smugly watching the West and their second waves while our infections plateau, we should see it as a warning call. The Western economies have social safety nets, we don’t. Our Treasury is empty and we just cannot go back to Stage 5. The fact that we are in summer, and even in winter we’re inclined to be outdoorsy, is really acting in our favour but we need to keep being careful for many months yet.
Planning is key
Wealth is what you have left when you consume your income, so focus on every aspect. More income, less consumption and growing and protecting your wealth.
- More income? Upskill or reskill. It doesn’t matter how old you are, if you’re in a vulnerable career, upskill in a new one. I did it when I turned 50, out of retail and into an industry that required substantial new qualifications and still requires continual education – but I never regret that for a minute. I love what I do, and it doesn’t feel like work. Keep an open mind, brainstorm everything that you could possibly do, then refine, refine and refine until you have 3 possibilities that you can start investigating in more detail. Avoid dying or economically vulnerable industries and professions, as much as you might love them. If you have kids hanging around not studying or working, and they can’t find a job, get them to volunteer or be an unpaid intern somewhere (it at least adds experience onto their resume). Unless your joint pension pot is full, stay-at-home spouses are a luxury very few families can still afford. (With more than 50% of marriages failing, and often more than once, staying at home is a very bad career move and will put a hole in your CV that will be seen as a blight (fair or not)).
- Consume less: If you’ve been working from home, then you should already be consuming less, but that could be transient. Lower interest rates probably also won’t last forever – but working from home and lower interest rates give you the opportunity to change your consumption patterns forever. Getting rid of expensive debt is the best gift you can give your future self. Credit cards are the biggest source of expensive debt and the best way to kill it over time is just to stop using it. Your debit/cheque card works exactly like a credit card for all online and instore purchases, so if you pay the interest and minimum payment every month on your credit card and don’t add any more – you’ll eventually pay it off. Look for exactly what the interest is on the card – that could be going to your investments and wealth. It’s a good place to put bonuses. You’re being charged 18-24% pa on that debt – no investment will give you anything like that return (reliably and after tax).
- Rent or own: Owning your own home and being able to mould that space as you want is wrapped up in identity and emotion, and sometimes not fact. Basically, owning your own home is an investment into your retirement fund so that you don’t have to pay rent in the future. As with all investments there are some caveats. Buy once and stay for as long as possible (25 years, say). Every time you sell and move you flush tens of thousands of your wealth down the tubes. If you’re tempted to move, get your financial advisor to help you separate the math from the emotion (and be your own realtor). If you’re going to ‘downsize’ at retirement, be realistic about how much of your funds you’re going to liberate, and question if it is really necessary.
- Protect what you’ve got. This is important for everyone, but doubly important for retirees. I am not picking on the golden oldies, but when you stop adding to your retirement kitty and start living off it, you can’t make a mistake – so unless you really know what you’re doing, don’t try and DIY. Investing in these volatile times is highly stressful, and when we’re stressed, we’re more inclined to make knee-jerk decisions. Our emotions are wrapped up in the wealth and investment decisions we make – It’s called behavioural finance. Right now, my advice is is to diversify (locally and globally), take profit, and create liquidity for coming opportunities at fire-sale prices.
- Looking for trends and opportunities: The pandemic has created a quantum shift in markets all over the world, but this too will pass, and probably leave behind quite a different landscape. You and your advisor need to find opportunities in countries, regions, currencies, sectors and asset classes (not necessarily share-picking). Over time, the single biggest predictor of portfolio performance is the asset allocation and not timing of the market or share picking. This is the secret sauce of your wealth manager and advisor team, not just picking the right stocks at the right time.
- Is advice value for money? If you’ve been looking after your investments all your life, it is hard to give up control, and it might burn you to have to give away percentage point or less to someone to give you a hand – but put it in perspective for a second. Shares, indices, Commodities, Sectors, ETFs regularly fall or rise one percent several times a WEEK. What about the longer term? REITS, (Real Estate Investment Trusts)for example, have had a real tough time for years now, on a 3-year basis they have lost 75% (but maybe they are bottoming out?) The internet is a wonderful source of (mostly free) information and advice – but it is one inch deep, a thousand miles wide and has the morals of an ally-cat. Mining the Web for worthwhile and trustworthy information is a skill in itself. Partner with a Wealth Management/Advisor team who will not only help you with your portfolio but do valuable skills transfer over time so you can make more informed decisions. If you’re just starting out on this journey you can still hang onto the coat-tails of good advice by following content providers and news outlets that prove themselves over time to be “on the money”.
- Prepare for retirement at least 10 years before you make the switch. I am not just talking about your financial pension pot, but what you’re going to do to keep you out of mischief and stop you taking your grumps out on everyone else. It might sound harsh, but get a life outside work. There are numerous variables that will dictate what your retirement is going to look like – some of which you have control over, others not. I might sound like a stuck record, but without a retirement plan your dreams may never become a reality. One of the most important outcomes from a retirement plan is the management of expectations. There is nothing more depressing than to sit in front of a new retiree, even if they have a decent pension pot, only to tell them that if they keep ‘consuming’ at the level they are used to that their pot is likely to be empty before the world is done with them. If that client’s expectations had been managed and planned a decade before, there would be time to add more to the pot – or to emotionally get used to living on and spending less.